Carpe Diem

Ethanol: “Dangerous, Delusional Bullshit”

Ethanol: Fails a Cost-Benefit Test
Ethanol production in the United States has been steadily growing and is expected to continue growing. Many politicians see increased ethanol use as a way to promote environmental goals, such as reducing greenhouse gas emissions, and energy security goals. This paper provides the first thorough benefit-cost analysis of increasing ethanol use beyond four billion gallons a year, and finds that the costs of increased production are likely to exceed the benefits by about three billion dollars annually. It also suggests that earlier attempts aimed at promoting ethanol would have likely failed a benefit-cost test, and that Congress should consider repealing the ethanol tariff and the ethanol tax credit.

Abstract of a new research paper “The Benefits and Costs of Ethanol,” by Robert W. Hahn and Caroline Cecot, both of the AEI-Brookings Joint Center for Regulatory Studies.


From Robert W. Hahn’s editorial in yesterday’s WSJ:

To hear the candidates tell it — especially those on the stump in Iowa — ethanol is the answer to America’s energy-security woes. And back in Washington, politicians since 1978 have been putting your money where their mouths are: Ethanol is currently subsidized to the tune of 51 cents per gallon when blended with gasoline.

To make sure foreigners don’t share the ride on the ethanol gravy train, moreover, Congress has imposed a 54-cent tariff on imported ethanol.

Carpe Diem

Goldilocks Rocks on Black Friday, +8.3% Increase

NEW YORK (AP)The nation’s retailers had a robust start to the holiday shopping season, according to results announced today by a national research group that tracks sales at retail outlets across the country. According to ShopperTrak RCT, which tracks sales at more than 50,000 retail outlets, total sales rose 8.3% to $10.3 billion on Friday, the day after Thanksgiving, compared with $9.5 billion on the same day a year ago. ShopperTrak had expected an increase of no more than 4-5%.

By the way, consider that gas prices last Thanksgiving were about $2.25 per gallon, and gas prices today are about $3.09. Even with gas prices 37% higher than a year ago, consumers spent a record amount this year on Black Friday. See the post below.
Carpe Diem

Why The Goldilocks Economy Can Handle $3 Gas

In a previous CD post “The Energy-Efficient Economy Can Handle $100 Oil,” I suggested that today’s economy is much better able to absorb higher energy prices than at any other time in the past, due to significant improvements in energy efficiency of the last 50 years. Compared to the early 1970s, the economy today is about twice as efficient, measured by energy consumption per dollar of real GDP. The graph in that post was featured on CNBC’sKudlow and Company” a few weeks ago and also appeared in Larry’s blog.

Here’s another reason that the Goldilocks economy is able to handle $3 per gallon gas without sending consumer spending into a tailspin and without causing a recession: Even at $3 per gallon, gas is still relatively affordable for today’s consumers, as a percent of disposable income, especially compared to the 1970s and 1980s.

The graph above (click to enlarge) shows the cost of 1,000 gallons of gas at the average retail price (using EIA data) as a percent of per-capita disposable income (from the BEA), from 1974-2007. Consider that since gas prices peaked in the early 1981 at about $1.40 per gallon, retail gas prices have increased by 2.21 times to $3.099 per gallon today. But per-capita disposable income has increased during that same period by more than 3.5 times, from $9591 in 1981 to $33,940 today.

In the early 1980s, it would have taken almost 15% of per-capita disposable income to buy 1,000 gallons of gas, and today it only takes only 8.5% (third quarter 2007). Even back in the “good old days” when gas sold for 50-60 cents per gallon in the mid-1970s, gas was more expensive as a share of income (10-11%) than today.

Bottom Line: Measured as a share of per-capita disposable income, gas prices would have to rise all the way to $5 per gallon today to be as expensive as gas in the early 1980s. Even if gas gets to $3.76 per gallon, it would be equivalent to 50 cent gas in the “good old days” of the mid-1970s, when measured as a share of disposable income. Goldilocks can handle $3 gas, no problem.
Carpe Diem

Libertarian Drew Carey on Medical Marijuana

One of the most outrageous consequences of the war on drugs is the federal crackdown on medical marijuana, which is used by patients to help treat the effects of cancer, glaucoma, HIV-AIDS, chronic pain and nausea, and other severe symptoms associated with serious illnesses. Medical marijuana prescribed by a physician is legal in 12 states, yet federal agents are raiding state-approved dispensaries and preventing patients from having safe access to this drug.

In Episode 2 of Reason.tv’s Drew Carey Project, Drew takes a look at patients who need and use medical marijuana in California, and how the federal government is making their lives even worse.

Carpe Diem

Bank Stocks Rebound by 2.5%, Keepin’ Hope Alive

In some “Black Friday bargain hunting,” the broader stock market indexes rebounded today by about 1.4% (see chart above, SP=red line, DJ=black and NASDAQ=green), and bank stocks rebounded at almost twice that rate (about 2.5%) as measured by the NASDAQ Bank Index (blue line above).

Maybe there’s hope.

(P.S. I’ll probably retire from intraday prognasticatin’, and wait until the market has closed to do my analyses.)
Carpe Diem

Weak Dollar = Strong Christmas Sales for Europeans

Returning to Iceland After Shopping Bender
at the Mall of America

MINNEAPOLIS Andrea Guðjónsdóttir arrived in Minnesota from Iceland last week with nothing but the clothes on her back. Oh, and two empty suitcases, which she promptly filled to near-bursting with clothes, toys and other gifts during a five-day shopping spree in the Twin Cities.

“Everything’s so cheap,” said Guðjónsdóttir, 35, who lives in Akranes, a seaport city on Iceland’s west coast. “You can pay $30 for Levi’s here; at home, it’d be $200.”

Guðjónsdóttir joins a growing number of shoppers across the world who are coming to the U.S. — and Minnesota — this holiday season to take advantage of good deals against the falling dollar. At a time when the U.S. economy is sagging, retailers say foreign tourists are providing a hedge against a Christmas season that’s expected to be the slowest in five years.

Carpe Diem

The Only Way to Follow People Over Time is To Follow People, Not Income Brackets or Quintiles

There are wild cards that need to be kept in mind when you hear income statistics thrown around. One of these wild cards is that most Americans do not stay in the same income brackets throughout their lives. Millions of people move from one bracket to another in just a few years.

What that means statistically is that comparing the top income bracket with the bottom income bracket over a period of years tells you nothing about what is happening to the actual flesh-and-blood human beings who are moving between brackets during those years.

Following trends among income brackets over the years creates the illusion of following people over time. But the only way to follow people is to follow people.

That is why the IRS data, which are for people 25 years old and older, and which follow the same individuals over time, find those in the bottom 20 percent of income-tax filers almost doubling their income in a decade. That is why they are no longer in the same bracket.

That is also why the share of income going to the bottom 20 percent bracket can be going down, as the Census Bureau data show, while the income going to the people who began the decade in that bracket is going up by large amounts.

~Thomas Sowell in “Income Confusion

Carpe Diem

More Government Control = More Corruption

World Corruption Map

From Transparency International: The 2007 Corruption Perceptions Index (CPI) looks at perceptions of public sector corruption in 180 countries and territories – the greatest country coverage of any CPI to date – and is a composite index that draws on 14 expert opinion surveys. It scores countries on a scale from zero to ten, with zero indicating high levels of perceived corruption and ten indicating low levels of perceived corruption (see world map above, click to enlarge).

A strong correlation between corruption and poverty continues to be evident. Forty percent of those scoring below three, indicating that corruption is perceived as rampant, are classified by the World Bank as low income countries. Somalia and Myanmar share the lowest score of 1.4, while Denmark has edged up to share the top score of 9.4 with perennial high-flyers Finland and New Zealand.

Notice a pattern? The greater the degree of free market capitalism, the greater the income levels and the less corruption (see the yellow and orange areas on the map). The greater the degree of government control over the economy, the lower the income levels and the greater the corruption (see the red and brown areas on the map). In other words, there appears to be a direct and positive relationship between the size of government and the amount corruption in a country.

(HT: Captain Capitalism)

Carpe Diem

Bogleheads: Stock-Picking is Evil; Boring is Good


If John Bogle is the high priest of the Bogleheads, stock-picking fanatic Jim Cramer would have to be Lucifer.

Meet the Bogleheads, devotees of Vanguard Group founder John Bogle, long-time advocate of the passive, low-cost, index approach to investing where you try to “meet, not beat the market.”

Bogleheads adhere to the “boring is good” investment philosophy of index investing, and they are against stock picking, against high fees and against what they say is the mostly self-serving investment industry.

In defense of the Bogleheads, consider the two charts above that compare the Fidelity Magellan Fund, one of the largest and most popular actively managed mutual funds in history, vs. the S&P500 Index. Over the last 25 years (top chart, click to enlarge), the S&P500 Index rose by almost +1200% vs. only about +400% for the Fidelity Magellan fund. In other words, if you have invested in Fidelity Magellan from 1982 to 2007, you would have been paying large fees to professional investment advisors like Peter Lynch to “help” you lose lots of money, compared to a passive investment in Bogle’s low-cost Vanguard S&P500 Index fund.

Lots and lots of money. $100,000 invested in Fidelity Magellan in 1982 would have grown to $500,000 by 2007, compared to $1,200,000 if you had selected the Vanguard S&P500 Index fund.

The bottom chart compares the Fidelity Magellan Fund to the S&P500 during the last 9 years of the period when legendary investment strategist Peter Lynch was managing the fund. Even a brilliant investor like Peter Lynch couldn’t beat the market during the period from 1982-1990.

And consider that a previous CD post reported that the return in 2006 for a portfolio of mostly Vanguard Index funds was +20.6%, compared to a -0.20% loss for a portfolio of “Select Jim Cramer Featured Stocks.”

Call me crazy, but I think the evidence is clear. Consider me a Boglehead.

(HT: Joyce Howe)

Carpe Diem

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CD Penetrates Cuba’s Digital Iron Curtain

Finally, the first visit to Carpe Diem from the heart of Cuba (see ClustrMap above), maybe from the city of Camaguey?!! As recently as Nov. 1, there hadn’t been a single visit to CD, see my post here.

From this Miami Herald article, “A meager 9 out of every 1,000 Cubans are estimated to be Internet users, most of them linked to the government. Reporters Without Borders last year denounced Cuba as one of a dozen nations with the most controlled and least accessible Internet, grouping the country with Iran and Vietnam.”

From this Reuters news report, “At a downtown Havana post office, Cubans line up for hours for their turn in the “surfing room.”

When users get to one of the four computers, they can send and receive e-mail and surf an Intranet of Cuban Web sites, but access to the global Internet is barred.

Getting online is not easy in communist-run Cuba, where the state strictly controls all Web servers and recently announced plans to crack down on illegal Internet access.”

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